State of Connecticut Accounting Manual - YEAR-END PROCEDURES AND FINANCIAL REPORTING


1.1 Statutory References:
Section 3-115 4-89
1.2 Purpose and Objectives of Year-End Closing
The purpose of year-end closing is to determine the final balances of appropriations, revenues, expenditures, assets, liabilities and fund balances needed to prepare financial statements and other reports on the results of operations and the financial condition of the State's funds.
1.3 Statutory vs. GAAP Closing
Commencing with the end of the fiscal year 1986-87, there will be two "closings" in order that financial statements may be prepared on each of the following:
Statutory (Budget) Basis- Connecticut currently uses a "Modified Cash" basis for budgetary enactments and legally required financial reporting. It is important in governmental accounting to report the results of operations and other financial information on a basis consistent with that used in budgeting in order to demonstrate legal compliance and to disclose the effectiveness of the budgetary process.
GAAP Basis - The Comptroller is also committed to the preparation of a Comprehensive Annual Financial Report (CAFR) on a basis consistent with Generally Accepted Accounting Principles (GAAP). GAAP financial reporting provides legislative and oversight officials, creditors and the citizenry with comprehensive financial reporting of the governmental entity in a manner directly comparable with other States and using accounting and disclosure conventions established by a national standards setting body (the Governmental Accounting Standards Board, GASB).

The Comprehensive Annual Financial Report to be issued will differ from the current "legal" reporting in the following respects:

Reporting Entity - The GAAP report will include organizations and funds not currently reported such as Treasurer's Trust Funds, Special Local Funds and Public Benefit Corporations which come under the State Reporting Entity.
Basis of Accounting and Assets and Liabilities - The GAAP report will utilize modified accrual and accrual accounting for revenue and expenditure items as well as incorporating many assets and liabilities not currently accounted for in the statutory financial statements.

Format and Disclosure - Footnotes and statistical tables will provide users with needed information for interpreting the financial statements and assessing the overall economic condition of the State.

The format of the GAAP report will differ from statutory reporting due to the unique reporting for Higher Education and other differences.

1.4 Agency Accounting and Reporting
Since GAAP reporting supplements rather than replaces statutory accounting and budgetary requirements; and since GAAP reports will be done annually; it is not required that day-to-day accounting activities be on a GAAP basis where this would require excessive effort or interfere with statutory appropriation and revenue compliance and/or internal management accounting needs.

Agencies are required, however, to maintain their financial records in a manner which will enable them to provide the required adjustments to legal balances and other information necessary for the Comptroller to prepare a GAAP annual report. This information must be in the format required by the Comptroller, in a timely manner consistent with the statewide closing schedule, and susceptible to audit and verification by the Auditors of Public Accounts.

2.1 General Information
Statutory (legal) closing refers to the recording of final balances of revenues, expenditures and appropriations on the budget basis.
General information is contained in each section of SAM for fiscal year-end procedures relating to its topic. Extensive supplementary information and exact cut-off dates are also published annually as Fiscal Year-End Instructions.
2.2 Schedule of Events and Reporting
May 1 Fiscal Year-End Instructions Issued
June 1 Notification to OPM by agencies of budgeted appropriations
which qualify and are needed for continuance.
June (3rd Cut-off for submission of commitments, expenditures
week) and transfers. Exact dates will be published in the fiscal
year-end instructions.
June 30 Fiscal Year-End
Final Deposits for Trust Funds.
July-Noon Deadline for submission of State Deposit Slips (CO-39) for
of 3rd all monies deposited in bank depositories on or before
working June 30th.
Deadline for deposit of all monies received by agencies on or before June 30.
These monies are still subject to the 24 hour deposit requirements for amounts
over $100 (Section 4-32). Deposit Slips (CO-39) should be immediately
prepared and submitted to the Treasurer.
July 25 Submission of Cash Held by Agencies - Reduced Expenditure Report. See the Reporting Section of SAM.
July -
4th week
Deadline for submission of agency corrections for old year expenditures and receipts.

Other reports which may be required of some or all agencies are described in the Reporting Section of SAM or agencies will be notified by the Comptroller.

3.1 General Information
As outlined in paragraph 1, GAAP closing refers to the process of gathering the information needed to make those adjustments and additions to the statutory accounting records required to produce a CAFR in conformance with GAAP.
This section of SAM covers the significant accounting policies governing the information to be collected as well as the process to be followed annually for compiling and auditing that information.
3.2 GAAP Closing Schedule
The following is a general outline of the scheduled events necessary for a successful GAAP closing.
May Distribution of Closing Package forms and instructions.
May - June GAAP Training for Agency Personnel.
June 30 End of Fiscal Year.
September Submission of closing packages by all agencies.
Adherence to this schedule by all concerned is crucial to a successful closing. Once closing packages are received, substantial effort on the part of Central Accounting staff and the Auditors of Public Accounts will remain as packages must be analyzed, questions resolved, journal entries and footnotes prepared, preparation of the CAFR and audit of all information contained therein.
3.3 Annual GAAP Training for Agencies
A single non-mandatory training session in May or June will be made available to any agency which feels the need to have new personnel attend or would like to refresh their knowledge. Additionally, certain key agencies will receive on-site training and assistance to ensure successful completion of their closing packages.
The purpose of the general training session is as follows:
- To review GAAP and the general process of GAAP reporting.
- To explain any changes to GAAP since the preceding year and their impact on closing
practices and forms.
- To review in detail the closing packages and the manner in which they are to be completed.
3.4 GAAP Closing Packages and Procedures
Exhibit 10-1 contains the actual general closing package and instructions for all agencies which were used for the FY 1990 closing. Packages and instructions will be updated annually for improvements in the forms and instructions and to incorporate any changes to GAAP effective for the year being reported on.
In addition to the general packages, special supplemental forms and instructions will be provided to those agencies with unique information requirements.
The current forms include a GAAP Forms Control Sheet and the following GAAP forms:
No. 1 Cash in Bank
No. 2 Investments
No. 3a
No. 3b
Due from Other Governments
No. 4 Deferred Revenue
No. 5 Contractual Commitments and Retainages
No. 6 Leases - State as Lessor
No. 7 Compensated Absences
No. 8 Other Financial Information
No. 9 Other Assets or Liabilities
3.5 Comptroller GAAP Reports
The new Statewide Accounting System will generate several reports to facilitate the GAAP closing and minimize the amount of information to be provided by agencies.
Of particular interest to agencies are the following reports:
Salary and Wages Accrual - The accounting system will calculate and generate journal entries to accrue salaries and wages for the last two pay periods of the fiscal year.
Vendor Accounts Payable Accrual - The accounting system will calculate and generate journal entries to accrue vendor accounts payable as of June 30. This information will be generated by accessing all vendor invoices processed during July thru September and selecting items with a RECEIPT DATE of June 30 or earlier.
It is for this reason that particular attention must be paid to the proper completion of Receipt Date on all invoices processed during these months so that the accrual is accurate. This will eliminate the need for agencies to determine their Vendor Accounts Payable as part of the year-end closing.
Capital Leases and Unexecuted Contracts - The system will utilize the commitment master files from the accounting system to generate information needed to properly record capital leases and disclosure information required for unexecuted contracts.
In order for these reports to be useable it is crucial that agencies correctly complete the "Lease Indicator, Committed Amount," "Obligated Amount" and "Contract Period" on all contracts and leases submitted to Central Accounts Payable. This will eliminate or substantially reduce the information that agencies will need to submit as part of the year-end closing.
3.6 Statewide Audit
The information submitted by agencies for the GAAP closing will be subject to audit by the Auditors of Public Accounts in order that they may certify the resulting financial statements.
Agencies must therefore prepare and retain for audit the necessary worksheets and other documentation necessary to provide an audit trail for any information submitted as part of the GAAP closing.
3.7 The Comprehensive Annual Financial Report (CAFR)
The GASB, in their Statement of Principle for Annual Financial Reporting, recommends that every governmental unit prepare and publish a CAFR. The CAFR is the governmental unit's official annual report which, in addition to financial statements, also contains introductory and statistical information. The financial, introductory, and statistical sections are intended to satisfy the information requirements of the many users of the CAFR.
The contents of a CAFR include the following:
Introductory Section:
-Letter of Transmittal from the Chief Financial Officer of the governmental unit.
-Organization charts of the governmental unit.
Financial Section:
-Auditors Report.
-Combined Statements (General Purpose Financial Statements):
-Combined Balance Sheet - All Fund Types and Account Groups.
-Combined Statement of Revenues, Expenditures and Changes in Fund Balances
- All Governmental Fund Types and Expendable Trust Funds.
-Combined Statement of Revenues, Expenditures and Changes in Fund Balances
- Budget and Actual - General and Special Revenue Fund Types (and other
Governmental Fund Types for which annual budgets have been legally adopted).
-Combined Statement of Revenues, Expenses and Changes in Retained Earnings/Fund Balances - All Propriety Fund Types and Similar Trust Funds.
-Combined Statement of Changes in Financial Position - All Proprietary Fund Types and Similar Trust Funds.
-Balance Sheet - Higher Education and University Hospital Fund.
-Combined Statement of Revenues, Expenses, Interfund Transfers, Operating Transfers and Changes in Fund Balance - Higher Education and University Hospital Fund.
-Notes to Financial Statements.
-Combining and Individual Fund and Account Group Statements and Schedules:
-Combining Statements - by fund type when a governmental unit has more than one fund of a given fund type.
-ndividual fund statements - when necessary to present prior year and/or budgetary comparisons.
Statistical Section:
-Statistical tables reflect social and economic data, financial trends and the fiscal capacity of the government.
3.8 Connecticut GAAP Accounting Policies
The following is an outline of certain basic accounting policies which will underlie GAAP accounting and reporting.
3.8.1 Reporting Entity
In conformance with Generally Accepted Accounting Principles, the Comprehensive Annual Financial Report (CAFR) of the State of Connecticut includes all departments, agencies and other organizational units over which the State exercises oversight responsibility. The ability of the State to exercise oversight responsibility over agencies and other legal governments is determined after applying the following criteria: financial interdependency; selection of governing authority; designation of management; ability to significantly influence operations; accountability for fiscal matters, source of revenues and scope of public services.


3.8.2 Fund Accounting
The financial activities of the State are accounted for on a fund basis. The operations of each fund are accounted for with a self-balancing set of accounts comprised of assets, liabilities, fund equity, revenues and expenditures or expenses. Government resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. These funds are classified into three broad categories: governmental funds, proprietary funds and fiduciary funds.
See the paragraph on Funds, starting on page 1-5 of this manual for a more detailed discussion of the fund types used in Connecticut.
In addition to the fund types used in statutory accounting and reporting, a "fund type" has been established for GAAP financial reporting purposes only to account for Higher Education and University Hospital activities. Also, two Account Groups are utilized to report General Fixed Assets and General Long Term Debt which are not recorded in any of the State's funds.
3.8.3 Basis of Accounting
The basis of accounting refers to when revenues and expenditures, expenses and transfers - and the related assets and liabilities - are recognized in the accounts and reported in the financial statements.
The modified accrual basis of accounting is applicable in the governmental fund types and expendable trust and agency funds. Under the modified accrual basis of accounting, revenues are recorded when they are susceptible to accrual. In order for revenue to be considered susceptible to accrual it must be both measurable and available to finance current expenditures of the fund. Revenue is considered available when it is collectible during the current period and the actual collection will occur either during the current period or after the end of the period but in time to pay current year-end liabilities.
Expenditures under the modified accrual basis of accounting are recognized when the related fund liability is incurred. Exceptions to this rule are: (1) principal and interest on general long-term debt which is recognized when due, (2) obligations of an employee's vested annual leave and sick leave are recorded as expenditures when paid and (3) inventories which may be considered expenditures when purchased.
The accrual basis of accounting is utilized in the proprietary funds, non-expandable trust funds, pension trust funds and the higher education and university hospital fund. Under this accounting basis, revenues are recognized when earned and expenses are recognized when incurred. Exceptions to this rule occur in the higher education and university hospital funds, as follows: depreciation expense related to plant fund assets and accrued vacation and sick leave are not recorded.

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